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Foot Locker (FL) Posts Positive Q3 Earnings Surprise

Foot Locker, Inc. (FL - Free Report) posted positive earnings surprise for the second straight quarter, as it reported third-quarter fiscal 2016 results. After outperforming the Zacks Consensus Estimate by 3.3% in the second quarter, this operator of athletic shoes and apparel retailer again beat the estimate by 1.8%. We noted that in the trailing four quarters (including the quarter under review) the company outperformed estimates by an average of 2%.

The company delivered quarterly earnings of $1.13 per share that beat the Zacks Consensus Estimate of $1.11 and jumped 13% year over year.

On the other hand, total sales of $1,886 million were up 5.1% year over year and came almost in line with the Zacks Consensus Estimate of $1,889 million. Excluding the impact of foreign currency fluctuations, total sales increased 5.5%.

The year-over-year growth in both the top and bottom-line was backed by effective implementation of the company’s operational and financial initiatives. Management believes that by continually capitalizing on opportunities like children’s business, shop-in-shop expansion in collaboration with its vendors, store banner.com business, store refurbishment and enhancement of assortments, Foot Locker is likely to benefit in the long run. International expansion, especially in Europe, is another growth catalyst. Further, the company is enhancing its eCommerce platform.

Gross margin expanded 10 basis points to 33.9% of sales due to increase in merchandise margin. The selling, general and administrative expense (SG&A) rate contracted 20 basis points to 19.4% during the quarter.

Management reaffirmed its projection of a mid-single digit increase in comparable sales in fiscal 2016. Foot Locker continues to anticipate double-digit growth in earnings per share for the fiscal year. For the fourth quarter, management expects marginal improvement in both gross margin and SG&A. Earnings per share are projected to advance in the double digit, while comparable sales are estimated to increase in mid-single digit for the quarter.

During the quarter under review, Foot Locker opened 21 new outlets, remodeled or relocated 40 outlets and shuttered 28 outlets. As of Oct 29, 2016, the company operated 3,394 outlets across 23 countries in North America, Australia, New Zealand and Europe. Apart from these, there are 56 franchised Foot Locker stores in South Korea and the Middle East. Germany has 15 franchised Runners Point stores.

Other Financial Details

Foot Locker ended the quarter with cash and cash equivalents of $865 million, long-term debt and obligations under capital leases of $127 million, and shareholders’ equity of $2,633 million.

During the quarter, the company repurchased 1.15 million shares worth $76.3 million and paid a quarterly dividend of 27.5 cents.

During the quarter, management incurred capital expenditures of approximately $62 million, and anticipates fiscal 2016 capital expenditures of approximately $290 million.

The Children's Place delivered an average positive earnings surprise of 36.3% over the trailing four quarters and has a long-term earnings growth rate of 10.3%.

Gap has a long-term earnings growth rate of 9.4%.

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